Business Plan Guide

Business Plan Guide
Hamid Houshmand
Purpose of a Business Plan
• Large company: Business plan from each
division/subsidiary or operating unit
• Merger: A business plan
• Acquisition: A business plan
• Selling off a unit: A business plan
• New project/Product: A business/project plan
• Acquiring financing for a new growing business
• Due diligence: Once buying a company
• Reverse due diligence: Once acquiring a new
Business Plan Functions
• Business plan: Map out the course of
company over a period of time
• Determining future projects
• Performance over time: Determining how well
goals have been met
• Raising money: A dynamic plan can facilitate
• Business planning is a continuous activity
Who Read The Business Plan
• Lender/Investor
_ Character
_ Cash flow
_ Collateral
_ Equity Contribution
• Venture capital funds
_ Quality of the individual entrepreneur
_ Functionality balanced team
_ Proprietary Characteristics
• Time table
Week 1-2 . Initial contact
Week 3. Mailing executive summary or the complete plan
Week 4-6. An Initial meeting
Week 7-18. Follow-up
Week 18. An offer from a financing source
Week 19-26. Negotiation of the deal
Week 26. Closing
Self, family, friends
Corporate venture capitalists
Partnership Agreement
Tax issue
Division of duties
Operating rights and responsibilities
Partnership structure
Due Diligence
Valuation (shareholder value analysis) of the
acquisition/merger linked to below act ivies with focus on
• Compatibility audit
• Financial audit
• Macro-environment audit
• Legal/environmental audit
• Marketing audit
• Production audit
• Management audit
• Information systems audit
• Reconciliation audit
Reverse Due Diligence
Valuation of a company to be kept
Positioning a company for potential sale
Positioning a company for potential financing
Positioning a company for initial public
Looking for investors
How responsive is the investor
What help, beyond financial, do they provide
Do they provide strategic advice
Transparent and share information
How they behave in a crisis _ Calm reaction to pressure
How involved do they get with your business - try to keep
this open ended so you don’t lead the other founder to the
answer you want to hear. One founders “very helpful”
could be another’s ”smothering.”
• Do they prepare for board meetings
• Do they make helpful introductions (customers, potential
members of the team, other funding sources)
• Have they been transparent with their time frame to exit
Business Plan _ Contents
Table of contents
Executive summary
General company description
Products and services
Marketing plan
Operational plan
Management and organization
Structure and capitalization
Financial plan
Executive Summary _
Be different- solving the problem with a new way
Focus on the things you can do
Be clear on what you want to accomplish
Capitalize on past achievements
Learn from your and others’ mistake
Enlist the help of experts
Check out your ideas with sceptics
Network, Network, Network
Load your mind with a great deal of information
Look forward and never give up
Executive Summary
• The essence of the report _ micro version of the entire plan
• Should provide a good understanding of the Plan’s concept,
finance, and metrices
• Generate an immediate interest
• Section by section format is one common format
• Functional areas: Product profile, marketing plan,
operational plan (major milestones), business competence,
financial plan
• Brief sales and profit history
• Brief on silent data: anticipated break-even points, return
on equity
• Offering a message: a personal assessment on the business
performance or optionally a message on the cover letter
General Company Description
A few pages
Fundamental activities and nature of the company
Manufacturer, retailer, or service business
Where is doing business
Where is it located
What customer is it attempting to serve
What stage the company has reached
Business objectives (realistic and attainable)
Plan to go public, seek to be acquired, develop new line of business
Brief on the management team
Availability of capital
Evaluation of risks and liquidity of company’s investments
Product and Services
Attention to company’s products & services
Physical description
Use and appeal
Stage of development
Demonstration of prototype
Marketing Plan
• Not a simple concept: Interesting and thought
• The most critical to a company’s success
• A real market need
• Market intensive business: elaborate
presentation (compelling market plan)
Marketing Plan 2
• Market definition and opportunity
• Competition and other influences
• Marketing strategy: distribution, advertising,
promotion, pricing, selling incentives
• Market research
• Sales forecasts
• Support material: Industry studies, letter of
support, brochures, reviews or articles
Market Definition and Opportunity
• Summary of industry growth, Trade
association, trade literature, industry studies
• The source of demand
• The way demand is satisfied
• Market share required for success determine
the degree of detail
• Identify relevant target markets, their natures
and their importance
Competition and other influences
• Degree of competition
• Future sources of competition
• Other influences: Regulation, Terrorist or
other threats
Marketing strategy
• How organize and implement its marketing
• Sales and distribution strategy
• Pricing strategy
• Advertising, public relations, and promotion
• Site analysis
• Related marketing budgets
• Future marketing activities
Market Research
• Preliminary market research
• Cost/benefit analysis to see the most effective
market research
• In some market: secondary research
• Databases are available on line by subscription
Sales Forecasts
• Sales by periods
• Three forecasts: Typically, conservative, most
• Sales by product or service
• Sales by customer group
• Market share
• Support material
Operational Plan
• What is the general approach to
• Which processes will be used in
• What are the labour requirements
• How will suppliers and vendors be used?
Operational Plan
• Product development: The gap between
design and an actual product. More detail on
technical team and on the technology
• Manufacturing: plant, equipment, material
labour, techniques and process, and output
• What processes in-house and what
• Maintenance and services
Operational Plan
• External influences:
_ Changing technology
_ Factors affecting productive resources
(labour and raw materials)
_ Customers
_ Regulations
_ IP protection, patents and licenses
_ Risk of imitation
Management and Organization
• Addressing the company’s personalities :
_ Will management be participative or
_ Will personnel share in the company’s
financial success
_ Will responsibility be sharply defined or will
be more flexible
_ Will management be able to set a tone to
entire organization
Management and Organization 2
• Management team and principals
• Organizational chart: name, title, years of
hiring, and salary
• Policy and strategy: Timing, Selection of
employees, and Compensation
Management Team & Principals
Founding entrepreneurs
Active investors
Key employees
Advisory board assisting technical, planning,
marketing , operation
• Key advisors such as lawyer or accountant
Major Milestones
Offer date in a generic manner
Financial commitments
Prototype development
First market test
Initiation of production and sales
Attaining break even performance
Expanding operation
Past events
Ambitious but achievable
Leave a margin of comfort in planning
Structure for Capialization
• Legal form
– Sole proprietorship
– Partnership
– Limited partnership
– S corporation
– C corporation
Structure for Capitalization
• Financial participation
– Capital requirements, how much is invested and how
much is needed
– Term loans
– Line of credit
– Convertible bond
– Bond with a stock warrant
– Preferred stock
– Cumulative preferred stock
– Convertible preferred stock
– Common stock, voting stock and non-voting stock
Financial Plan
• Company’s anticipated financial performance:
– Reliable data
– More than one financial scenario, due to
uncertainty of data
– To review periodically
– When necessary revise the projection
– Alignment with other part of the business plan
Assumptions on which the projection
is based on
• Income statement: typically for five years,
reflect quarterly performance
• Cash flow statement: in great details in the
first two years, quarterly or annual cash flow
• Current balance sheet: typically for five years
• A break-even analysis
Projected or Historic Performance
• Liquidity ratios: Current assets / current
• Asset management ratios: inventory turnover
and accounts receivable turnover
• Debt ratios: debt-to-equity ratio